UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_________________________
FORM
10-Q
_________________________
(Mark
One)
x
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Quarterly
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
quarterly period ended September 30,
2009
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¨
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Transition
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from
to
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Commission
File No. 001-32569
_________________________
AMERICAN
ORIENTAL BIOENGINEERING, INC.
(Exact
Name of Registrant as Specified in Its Charter)
_________________________
NEVADA
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84-0605867
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1
Liangshuihe First Ave, Beijing E-Town Economic and Technology Development Area,
E-Town,
Beijing,
100176, People’s Republic of China
(Address
of principal executive offices) (Zip Code)
86-10-5982-2039
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
_________________________
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated
filer
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¨
(Do
not check if a smaller reporting company)
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Smaller reporting company
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¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
The
number of shares outstanding of each class the issuer’s common stock as of the
latest practicable date is stated below
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Title
of each class of common stock
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Outstanding
as of September 30, 2009
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Preferred
Stock, $0.001 par value
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1,000,000
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Common
Stock, $0.001 par value
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78,321,439
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Table
of Contents
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PART
I – FINANCIAL INFORMATION
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ITEM 1
– FINANCIAL STATEMENTS
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ITEM 2
– MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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ITEM 3
– QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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ITEM 4
– CONTROLS AND PROCEDURES
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PART
II – OTHER INFORMATION
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ITEM 1
– LEGAL PROCEEDINGS
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ITEM 2
– UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
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ITEM 3
– DEFAULTS UPON SENIOR SECURITIES
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ITEM 4
– SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
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ITEM 5
– OTHER INFORMATION
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PART
I – FINANCIAL INFORMATION
ITEM
1 – FINANCIAL STATEMENTS
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
ASSETS
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SEPTEMBER
30,
2009
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DECEMBER
31,
2008
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(UNAUDITED)
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(RESTATED)
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Cash
and cash equivalents
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Accounts
receivable, net of reserve of $512,013 and $226,330
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at
September 30 , 2009 and December 31, 2008,
respectively
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Property,
plant and equipment, net
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Deposit
for long-term assets
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Other
intangible assets, net
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Investments
and advances in unconsolidated entities
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Unamortized
financing cost
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See
accompanying notes to the condensed consolidated financial
statements
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND
EQUITY
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SEPTEMBER
30,
2009
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DECEMBER
31,
2008
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(UNAUDITED)
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(RESTATED)
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Other
payables and accrued expenses
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Current
portion of long-term bank loans
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Total
Current Liabilities
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Long-term
bank loans, net of current portion
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Unrecognized
tax benefits
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Total
Long-Term Liabilities
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COMMITMENTS
AND CONTINGENCIES
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Preferred
stock, $0.001 par value; 2,000,000 shares
authorized;
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1,000,000
shares issued and outstanding at September 30 , 2009 and December 31,
2008, respectively
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Common
stock, $0.001 par value; 150,000,000 shares
authorized;
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78,321,439
and 78,249,264 shares issued and outstanding at September 30, 2009 and
December 31, 2008, respectively.
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Common
stock to be issued
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Prepaid
forward repurchase contract
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Additional
paid-in capital
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Retained
earnings (including Statutory Reserve amounted to
$19,924,918
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at
BOTH September 30 , 2009 and December 31, 2008,
respectively)
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Accumulated
other comprehensive income
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Total
Shareholders’ Equity
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TOTAL
LIABILITIES AND EQUITY
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See
accompanying notes to the condensed consolidated financial
statements
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
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THREE
MONTHS ENDED
SEPTEMBER
30,
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NINE
MONTHS ENDED
SEPTEMBER
30,
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2009
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2008
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2009
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2008
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(RESTATED)
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(RESTATED)
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General
and administrative
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Depreciation
and amortization
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EQUITY
IN EARNINGS (LOSS) FROM UNCONSOLIDATED ENTITIES
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OTHER
INCOME (EXPENSE), NET
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INCOME
BEFORE INCOME TAXES
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LESS:
NET INCOME (LOSS) ATTRIBUTABLE TO
NON-CONTROLLING INTEREST
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NET
INCOME ATTRIBUTABLE TO
CONTROLLING INTEREST
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OTHER
COMPREHENSIVE INCOME
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NET
INCOME PER COMMON SHARE
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WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
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See
accompanying notes to the condensed consolidated financial
statements
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine
Months Ended
September
30 ,
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2009
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2008
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(RESTATED)
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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Depreciation
and amortization
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Loss
(gain) on disposal of plant and equipment
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Amortization
of deferred issuance cost
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Amortization
of deferred consulting expenses
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Provision
(reversal) for doubtful accounts and slow moving
inventories
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Common
stock issued for services
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Stock
option compensation expense
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Independent
director stock compensation
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Equity
in (income) loss from unconsolidated
entities
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Changes
in operating assets and liabilities:
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Advances
to suppliers and prepaid expenses
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Other
payables and accrued expenses
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Unrecognized
tax benefits
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-
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Net
cash provided by operating activities
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Purchases
of construction in progress
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Purchases
of property, plant and equipment
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Purchase
of land use rights and other intangible assets
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Deposit
for long-term assets
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Proceeds
from disposal of plant and equipment
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Investments
in and advances to equity investments
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Net
cash used in investing activities
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CASH
FLOWS FROM FINANCING ACTIVITIES
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Proceeds
from notes payable
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Net
proceeds from convertible notes
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Prepaid
forward repurchase
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Repayment
of notes payable and interest
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Repayment
of convertible notes interest
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Net
cash used in financing activities
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NET
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
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Effect
of exchange rate changes on cash
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Cash
and cash equivalents, beginning of year
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CASH
AND CASH EQUIVALENTS, END OF PERIOD
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See
accompanying notes to the condensed consolidated financial
statements
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
NOTE
1 – BASIS OF PRESENTATION
The
unaudited condensed consolidated financial statements of American Oriental
Bioengineering, Inc. and subsidiaries (the “Company”) have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and pursuant to the requirements for reporting on Form
10-Q. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States of
America for annual financial statements. However, the information included in
these interim financial statements reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary for the fair presentation of the consolidated financial position and
the consolidated results of operations. Results shown for interim periods are
not necessarily indicative of the results to be obtained for a full year. The
condensed consolidated balance sheet as of December 31, 2008 was derived from
the audited consolidated financial statements included in the Company’s Annual
Report on Form 10-K/A. These interim financial statements should be read in
conjunction with that report.
Basis of Consolidation -
The
condensed consolidated financial statements include the accounts of American
Oriental Bioengineering, Inc. and its subsidiaries. Inter-company accounts and
transactions have been eliminated in consolidation.
Use of Estimates -
The
preparation of the unaudited condensed consolidated financial statements in
conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the condensed consolidated financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Significant estimates reflected in the condensed consolidated financial
statements include, but are not limited to, the recoverability of the carrying
amount and estimated useful lives of long-lived assets, allowance for accounts
receivable, realizable values for inventories,
valuation
allowance of deferred tax assets, purchase price allocation of its acquisitions
and share-based compensation expenses. Management makes these estimates using
the best information available at the time the estimates are made; however,
actual results when ultimately realized could differ from those estimates. See
“Critical Accounting Policies and Estimates” in the Management’s Discussion and
Analysis of Financial Condition and Results of Operations” section
below.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS
Revenue Recognition –
Revenues represent the invoiced value of goods sold, recognized upon the
shipment of goods to customers. Revenues are recognized when all of the
following criteria are met:
|
●
|
Persuasive
evidence of an arrangement exists,
|
|
●
|
Delivery
has occurred or services have been
rendered,
|
|
●
|
The
seller's price to the buyer is fixed or determinable,
and
|
|
●
|
Collectability
is reasonably assured.
|
Starting
2008, the Group offered sales rebates to its major customers based on
collections made during the year, provided that the customers make payments
prior to certain days after year end. The rebates are calculated based on
different percentages depending on settlement methods, which include settling by
cash or notes receivable. Customers are entitled to either cash rebates or
receiving additional free inventory based on predetermined price. In accordance
with ASC 605, the Group accounted for estimated cash settlement as sales
discount, and estimated free inventory as cost of sales, upon recognition of
revenue.
Selling and Marketing Expenses
–
Selling and marketing expenses include the costs of selling
merchandise, including preparing the merchandise for sale, such as picking,
packing, warehousing and order charges. All shipping and handling are expensed
as incurred and outbound freight is not billed to customers.
Advertising Costs –
The
Company expenses advertising costs as incurred or the first time advertising
takes place. Point of sale materials are accounted for as inventory and charged
to expense as utilized.
Research and Development –
Research and development costs are expensed as incurred. Engineers and technical
staff are involved in the production of our products as well as on-going
research, with no segregation of the portion of their salaries relating to
research and development from the portion of their salaries relating to
production. The total salaries are included in cost of goods sold. Research and
development expense for the three months ended September 30, 2009 and 2008 is
$637,657 and $437,712, respectively and is included in general and
administrative expenses.
Foreign Currency Translation
–
The accompanying condensed consolidated financial statements are
presented in United States dollars (USD). The functional currency of the Company
is United States dollars (USD) and of the Company’ subsidiaries operating in PRC
is Chinese Renminbi (RMB). Capital accounts of the financial statements are
translated into United States dollars from RMB at their historical exchange
rates when the capital transactions occurred. Assets and liabilities are
translated at the exchange rates as of balance sheet date. Income and
expenditures are translated at the average exchange rate for the
quarter.
|
September
30,
2009
|
|
September
30,
2008
|
Quarter
end RMB : US$ exchange rate
|
|
|
|
Average
quarterly RMB : US$ exchange rate
|
|
|
|
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.
Comprehensive Income –
Comprehensive income is defined to include changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, items that are required to be recognized under current accounting
standards as components of comprehensive income are required to be reported in a
financial statement that is presented with the same prominence as other
financial statements. Comprehensive income for the Company includes net income
attributable to controlling interest and the foreign currency
translation gain.
Stock Based Compensation –
The Company estimates fair value of restricted stock based compensation on the
number of shares granted and the quoted price of the Company’s common stock on
the date of grant. The fair value of stock options is estimated using the
Black-Scholes model. The Company’s expected volatility assumption is based on
the historical volatility of Company’s stock. The expected life assumption is
presumed to be the mid-point between the vesting date and the end of the
contractual term, as is permitted for “plain vanilla” employee stock options.
The risk-free interest rate for the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
Stock
compensation expense recognized is based on awards expected to vest, and there
were no estimated forfeitures as the current options outstanding were only
issued to founders and senior executives of the Company, which have very low
turnover. Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 718 “Compensation – Stock Compensation” requires forfeitures
to be estimated at the time of grant and revised in subsequent periods, if
necessary, if actual forfeitures differ from those estimates.
Income Taxes –
The Group
accounts for income taxes in accordance with ASC 740, “Accounting for Income
Taxes”. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax bases
of assets and liabilities using enacted tax rates that will be in effect in the
period in which the differences are expected to reverse. The Group
records a valuation allowance to offset deferred tax assets if based on the
weight of available evidence, it is more-likely-than-not that some portion, or
all, of the deferred tax assets will not be realized. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
Effective
January 1, 2007, the Group adopted ASC 740-10-25/30 (formerly Financial
Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement No. 109” (“FIN
48”)). FIN 48 clarifies the accounting for uncertainty in income
taxes by prescribing the recognition threshold a tax position is required to
meet before being recognized in the financial statements. The cumulative effects
of applying FIN 48, if any, is recorded as an adjustment to retained earnings as
of the beginning of the period of adoption. The Group’s adoption of FIN 48 did
not result in any adjustment to the opening balance of the Group’s retained
earnings as of January 1, 2007.
Segment Reporting –
The
Company has two operating segments based on its major lines of businesses:
manufacturing and distribution. Each operating segment derives its revenues from
the sale of products or services, respectively and each is the responsibility of
a group of senior management of the Company who has knowledge of product and
service specific operational risks and opportunities. The Company’s chief
operating decision maker reviews and evaluates two sets of financial information
deciding how to allocate resources and in assessing performance.
For the
three and nine months ended September 30, 2009 and 2008 the Company’s
manufacturing and distribution revenue are as follows:
|
|
Three
Months Ended
September
30 ,
(Unaudited)
|
|
|
Nine
Months Ended
September
30 ,
(Unaudited)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from pharmaceutical products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from nutraceutical products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
manufacturing revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
For the
three and nine months ended September 30, 2009 and 2008 the Company’s operating
income are as follows:
|
|
Three
Months Ended
September
30 ,
(Unaudited)
|
|
|
Nine
Months Ended
September
30 ,
(Unaudited)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income from pharmaceutical products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income from nutraceutical products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
manufacturing operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30, 2009 and December 31, 2008, the total assets for the
manufacturing, distribution and corporate segments are as follows:
|
|
September
30 ,
2009
|
|
|
December
31,
2008
|
|
|
|
(Unaudited)
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
368,173,989
|
|
|
$
|
316,767,049
|
|
|
|
|
52,888,727
|
|
|
|
52,445,008
|
|
|
|
|
141,270,974
|
|
|
|
159,463,675
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
562,333,690
|
|
|
$
|
528,675,732
|
|
Cash and Cash Equivalents
–
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The majority of the
Company’s cash as of September 30, 2009 is in our current working capital bank
account. Restricted cash for the issuance of bank acceptance notes amounted to
$3,903,718 and $2,575,741 were included in the cash and cash equivalents balance
as of September 30, 2009 and December 31, 2008,
respectively.
Fair Value of Financial
Instruments
–FASB ASC 820 “Fair Value Measurements and Disclosures”
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. The hierarchy prioritizes the inputs into three levels
based on the extent to which inputs used in measuring fair value are observable
in the market.
These
tiers include:
|
·
|
Level 1—defined
as observable inputs such as quoted prices in active
markets;
|
|
·
|
Level 2—defined
as inputs other than quoted prices in active markets that are either
directly or indirectly observable;
and
|
|
·
|
Level 3—defined
as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own
assumptions.
|
The
carrying amounts of financial assets and liabilities, such as cash and cash
equivalents, accounts receivable, notes receivable, short-term and long-term
bank loans, accounts payable, notes payable and other payables, approximate
their fair values because of the short maturity of these instruments. The
convertible notes are initially recognized at fair value upon issuance and
subsequently accreted to the redemption value using the effective interest rate
method, with any accrued and unpaid interest is included under other payables
and accrued expenses.
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
(UNAUDITED)
Recently
Issued Accounting Standards
On
April 1, 2009, the FASB approved FSP FAS 141(R)-1,
Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies,
which amends Statement 141(R), as incorporated into Accounting Standards
Codification Topic 805, “Business Combinations” (“ASC 805”), and eliminates the
distinction between contractual and non-contractual contingencies. Under the
updated standard an acquirer is required to recognize at fair value an asset
acquired or liability assumed in a business combination that arises from a
contingency if the acquisition-date fair value of that asset or liability can be
determined during the measurement period. If the acquisition-date fair value
cannot be determined, the acquirer applies the recognition criteria in
Accounting Standards Codification Topic 450, “Contingencies” (“ASC
450”)(No. 5,
Accounting
for Contingencies
and Interpretation 14, “Reasonable Estimation of the
Amount of a Loss – and interpretation of FASB Statement No. 5,”) to
determine whether the contingency should be recognized as of the acquisition
date or after it. This guidance is effective for assets or liabilities arising
from contingencies in business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. The adoption of such standard has not had a material
impact on our condensed consolidated financial statements.
In April
2009, the FASB issued Staff Position (“FSP”) No. FAS 157-4, “Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP
FAS 157-4”) as incorporated into Accounting Standards Codification Topic 820,
“Fair Value Measurements and Disclosures” (“ASC 820”). The guidance relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales. It reaffirms what ASC 820 (SFAS No. 157)
states is the objective of fair value measurement—to reflect how much an asset
would be sold for in an orderly transaction (as opposed to a distressed or
forced transaction) at the date of the financial statements under current market
conditions. Specifically, it reaffirms the need to use judgment to ascertain if
a formerly active market has become inactive and in determining fair values when
markets have become inactive. This guidance is effective for interim and annual
periods ending after June 15, 2009, but entities may early adopt this guidance
for the interim and annual periods ending after March 15, 2009. The adoption of
such standard has not had a material impact on our condensed consolidated
financial statements.
FSP FAS
115-2 and FAS 124-2 , as incorporated into Accounting Standards Codification
Topic 320, “Investments- Debt and Equity Securities” (“ASC 320”) amend the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. It does not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity securities.
Disclosures for periods presented for comparative purposes at initial adoption
are not required. This guidance is effective for interim and annual reporting
periods ending after June 15, 2009, and shall be applied prospectively. The
adoption of such standard has not had a material impact on our condensed
consolidated financial statements.
On
April 9, 2009, the FASB approved FSP FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of
Financial Instruments
to
require disclosures about fair value of financial instruments in interim period
financial statements of publicly traded companies and in summarized financial
information required by APB Opinion No. 28,
Interim Financial Reporting
.
This guidance was incorporated into Accounting Standards Codification Topic 825,
“Financial Instruments” (“ASC 825”) which was effective for interim and annual
reporting periods ending after June 15, 2009 and was adopted starting third
quarter 2009. Under the standard comparative disclosures are only required for
periods ending after initial adoption.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events,” (Accounting Standards
Codification Topic 855-10) which establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements. The statement is effective for interim and annual periods
ending after June 15, 2009. The Company has adopted the statement and evaluated
all subsequent events up until November 16, 2009.
In June
2009, the FASB issued FASB Accounting Standards Update (ASU) 2009-01, which
amends ASC Topic 105, “Generally Accepted Accounting Principles” ( Statement of
Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards
Codification TM and the Hierarchy of Generally Accepted Accounting Principles –
a replacement of FASB Statement No. 162,” ) , which establishes the FASB
Accounting Standards Codification TM (“Codification”) as the source of
authoritative generally accepted accounting principles in the United States
(“GAAP”) for nongovernmental entities. The Codification does not
change GAAP. Instead, it takes the thousands of individual pronouncements that
currently comprise GAAP and reorganizes them into approximately 90 accounting
Topics, and displays all Topics using a consistent
structure. Contents in each Topic are further organized first by
Subtopic, then Section and finally Paragraph. The Paragraph level is the only
level that contains substantive content. Citing particular content in the
Codification involves specifying the unique numeric path to the content through
the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all
citations begin with “FASB ASC”. Changes to the ASC subsequent to June 30, 2009
are referred to as Accounting Standards Updates (“ASU”).
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
In August
2009, the FASB issued Accounting Standards Update No. 2009-5, “Measuring
Liabilities at Fair Value” (“ASU 2009-05”). ASU 2009-05 amends Accounting
Standards Codification Topic 820, “Fair Value Measurements”. Specifically, ASU
2009-05 provides clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the following
methods: 1) a valuation technique that uses a) the quoted price of the identical
liability when traded as an asset or b) quoted prices for similar liabilities or
similar liabilities when traded as assets and/or 2) a valuation technique that
is consistent with the principles of Topic 820 of the Accounting Standards
Codification (e.g. an income approach or market approach). ASU 2009-05 also
clarifies that when estimating the fair value of a liability, a reporting entity
is not required to adjust to include inputs relating to the existence of
transfer restrictions on that liability. The Company does not anticipate that
the adoption of this statement will have a material impact on its condensed
consolidated financial statements.
In
September 2009, the Emerging Issues Task Force reached final consensus on ASU
2009-13, “Revenue Arrangements with Multiple Deliverables”. ASU 2009-13
addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, and how the arrangement
consideration should be allocated among the separate units of accounting. The
topic may be applied retrospectively or prospectively for new or materially
modified arrangements and early adoption is permitted. The Company is currently
evaluating the potential impact of adopting this statement.
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
NOTE
3 – RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL STATEMENTS
During
the review of its third quarter September 30, 2009 operating results, the
Company identified historical accounting errors in: (i) the calculation of stock
based compensation, (ii) the recognition of deferred tax liabilities of certain
acquired assets and (iii) the provision of deferred tax liabilities on
undistributed earnings of foreign subsidiairies. The accounting errors have
resulted in the misstatement of certain balance sheet
and
income statement items and the cumulative net earnings since 2006. The errors
did not result from any fraud or intentional misconduct and the Company
undertook a review to determine the total amount of the errors and the
accounting periods in which the errors occurred. As a result, the Company chose
to restate its previously reported financial statements.
The
Company has restated certain applicable financial statements as of and for the
years ended December 31, 2008 and 2007 and 2006 as reported in its amended
annual report on Form 10K/A for the fiscal year ended December 31,
2008. The restated financial information for each of the three interim quarterly
periods for 2008 and 2007 were also included in the amended annual report on
Form 10-K/A for the fiscal year ended December 31, 2008.
Because
the errors also impacted the first two quarters of 2009, the following tables
set forth the effects of the restatement on our previously reported unaudited
interim condensed consolidated balance sheets and the related condensed
consolidated statements of operations and cash flows as of and for the three
month periods ended March 31, 2009 and June 30, 2009:
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
As
of March 31, 2009
|
|
|
As
of June 30, 2009
|
|
|
|
Previously
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
Previously
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
Reported
|
|
|
Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
$
|
456,444
|
|
|
$
|
-
|
|
|
$
|
456,444
|
|
|
$
|
421,660
|
|
|
$
|
-
|
|
|
$
|
421,660
|
|
Goodwill
|
|
|
28,543,226
|
|
|
|
4,620,895
|
|
|
|
33,164,121
|
|
|
|
28,543,226
|
|
|
|
4,620,895
|
|
|
|
33,164,121
|
|
Total
assets
|
|
|
524,860,987
|
|
|
|
4,620,895
|
|
|
|
529,481,882
|
|
|
|
540,796,581
|
|
|
|
4,620,895
|
|
|
|
545,417,476
|
|
Deferred
tax liability - current
|
|
|
999,454
|
|
|
|
(805,826
|
)
|
|
|
193,628
|
|
|
|
1,121,738
|
|
|
|
(943,828
|
)
|
|
|
177,910
|
|
Other
payables and accrued expenses
|
|
|
13,578,351
|
|
|
|
93,301
|
|
|
|
13,671,652
|
|
|
|
14,251,673
|
|
|
|
187,639
|
|
|
|
14,439,312
|
|
Deferred
tax liability - non current
|
|
|
16,102,048
|
|
|
|
1,556,973
|
|
|
|
17,659,021
|
|
|
|
15,963,766
|
|
|
|
1,698,702
|
|
|
|
17,662,468
|
|
Unrecognized
tax benefits
|
|
|
-
|
|
|
|
387,095
|
|
|
|
387,095
|
|
|
|
-
|
|
|
|
774,190
|
|
|
|
774,190
|
|
Total
liabilities
|
|
|
170,340,559
|
|
|
|
1,231,543
|
|
|
|
171,572,102
|
|
|
|
172,588,137
|
|
|
|
1,716,703
|
|
|
|
174,304,840
|
|
Additional
paid-in capital
|
|
|
196,352,466
|
|
|
|
1,560,370
|
|
|
|
197,912,836
|
|
|
|
196,752,860
|
|
|
|
1,759,609
|
|
|
|
198,512,469
|
|
Retained
earnings
|
|
|
157,790,182
|
|
|
|
(886,069
|
)
|
|
|
156,904,113
|
|
|
|
171,019,548
|
|
|
|
(1,546,097
|
)
|
|
|
169,473,451
|
|
Accumulated
other comprehensive income
|
|
|
29,464,472
|
|
|
|
2,715,051
|
|
|
|
32,179,523
|
|
|
|
29,510,788
|
|
|
|
2,690,680
|
|
|
|
32,201,468
|
|
Total equity
|
|
|
354,520,428
|
|
|
|
3,389,352
|
|
|
|
357,909,780
|
|
|
|
368,208,444
|
|
|
|
2,904,192
|
|
|
|
371,112,636
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
524,860,987
|
|
|
$
|
4,620,895
|
|
|
$
|
529,481,882
|
|
|
$
|
540,796,581
|
|
|
$
|
4,620,895
|
|
|
$
|
545,417,476
|
|
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
Three
months ended March 31, 2009
|
|
|
Three
months ended June 30, 2009
|
|
|
|
Previously
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
Previously
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
Reported
|
|
|
Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
4,565,643
|
|
|
$
|
348,527
|
|
|
$
|
4,914,170
|
|
|
$
|
4,315,714
|
|
|
$
|
293,577
|
|
|
$
|
4,609,291
|
|
Income
from operations
|
|
|
11,213,435
|
|
|
|
(348,527
|
)
|
|
|
10,864,908
|
|
|
|
18,285,061
|
|
|
|
(293,577
|
)
|
|
|
17,991,484
|
|
Income
before income tax
|
|
|
9,973,351
|
|
|
|
(348,527
|
)
|
|
|
9,624,824
|
|
|
|
16,475,405
|
|
|
|
(293,577
|
)
|
|
|
16,181,828
|
|
Income
tax
|
|
|
2,103,299
|
|
|
|
366,465
|
|
|
|
2,469,764
|
|
|
|
3,369,107
|
|
|
|
366,451
|
|
|
|
3,735,558
|
|
Net
income
|
|
|
7,870,052
|
|
|
|
(714,992
|
)
|
|
|
7,155,060
|
|
|
|
13,106,298
|
|
|
|
(660,028
|
)
|
|
|
12,446,270
|
|
Foreign
currency translation gain
|
|
|
378,466
|
|
|
|
112,871
|
|
|
|
491,337
|
|
|
|
46,316
|
|
|
|
(24,371
|
)
|
|
|
21,945
|
|
Comprehensive
income
|
|
|
8,244,967
|
|
|
|
(602,121
|
)
|
|
|
7,642,846
|
|
|
|
13,275,682
|
|
|
|
(684,399
|
)
|
|
|
12,591,283
|
|
Basic
EPS
|
|
|
0.11
|
|
|
|
(0.01
|
)
|
|
|
0.10
|
|
|
|
0.18
|
|
|
|
(0.01
|
)
|
|
|
0.17
|
|
Diluted
EPS
|
|
$
|
0.11
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.10
|
|
|
$
|
0.17
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.16
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Three
months ended March 31, 2009
|
|
|
Six
months ended June 30, 2009
|
|
|
|
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,870,052
|
|
|
$
|
(714,992
|
)
|
|
$
|
7,155,060
|
|
|
$
|
20,976,350
|
|
|
$
|
(1,375,020
|
)
|
|
$
|
19,601,330
|
|
Deferred
tax
|
|
|
54,118
|
|
|
|
(40,200
|
)
|
|
|
13,918
|
|
|
|
67,471
|
|
|
|
57,865
|
|
|
|
125,336
|
|
Stock
option compensation expense
|
|
|
234,631
|
|
|
|
255,226
|
|
|
|
489,857
|
|
|
|
673,035
|
|
|
|
454,465
|
|
|
|
1,127,500
|
|
Unrecognized
tax benefits
|
|
|
-
|
|
|
|
387,095
|
|
|
|
387,095
|
|
|
|
-
|
|
|
|
774,190
|
|
|
|
774,190
|
|
Net
cash provided by operating activities
|
|
|
3,641,873
|
|
|
|
(112,871
|
)
|
|
|
3,529,002
|
|
|
|
26,540,242
|
|
|
|
(88,500
|
)
|
|
|
26,451,742
|
|
Net
increase (Decrease) in cash and cash equivalents
|
|
|
3,160,019
|
|
|
|
(112,871
|
)
|
|
|
3,047,148
|
|
|
|
29,976,336
|
|
|
|
(88,500
|
)
|
|
|
29,887,836
|
|
Effect
of exchange rate change on cash
|
|
$
|
103,073
|
|
|
$
|
112,871
|
|
|
$
|
215,944
|
|
|
$
|
117,556
|
|
|
$
|
88,500
|
|
|
$
|
206,056
|
|
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
(UNAUDITED)
NOTE
4 – EARNINGS PER SHARE
Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding,
excluding common shares to be delivered under a prepaid forward repurchase
contract (3,712,700 shares), during the period. Diluted earnings per share is
computed similar to basic earnings per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive.
The
following is a reconciliation of the numerator and denominator used in the
calculation of basic and diluted earnings per share available to common
shareholders.
|
|
Three
Months Ended
September
30,
(Unaudited)
|
|
|
Nine
Months Ended
September
30,
(Unaudited)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense on convertible securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of financing costs, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
capitalization of interest on convertible securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
calculation of weighted average common shares outstanding for the diluted
calculation excludes consideration of stock options for the three and nine
months ended September 30, 2009 and 2008, respectively, because the exercise of
these options would not have been dilutive for those periods due to the fact
that the exercise prices were greater than the weighted average market price of
our common stock for each of those periods.
As more
fully discussed in Note 14, the Company had certain convertible notes
outstanding during the periods presented. The aggregate number of shares of
common stock that could be issued in the future to settle these notes is deemed
outstanding for the purposes of the calculation of diluted earnings per share.
This approach, referred to as the if-converted method, requires that such shares
be deemed outstanding regardless of whether the notes are then contractually
convertible into the Company’s common stock. For this if-converted calculation,
the interest expense and issuance costs (net of tax) attributable to these notes
are added back to Net Income, reflecting the assumption that the notes have been
converted. The effects of share options granted in current and prior years have
been excluded from the computation of dilutive earnings per share for the nine
months ended September 30, 2008 and 2009, respectively, as the effects are
anti-dilutive.
NOTE
5 – INVENTORIES
Inventories
are summarized as follows:
|
|
September
30,
2009
|
|
|
December
31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
provision for slow moving inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
NOTE
6 – NOTES RECEIVABLE
Notes
receivable are bank acceptance notes collected from customers. The notes do not
bear interest and are to be received within one year.
NOTE
7 – LAND USE RIGHTS
Land use
rights consist of the following:
|
|
September
30,
2009
|
|
|
December
31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expenses for the three months ended September 30, 2009 and 2008 were $844,710
and $279,504, respectively. Amortization expenses for the nine months ended
September 30, 2009 and 2008 were $2,415,575 and $823,270,
respectively.
As of
September 30, 2009, the net book value of land use rights pledged as collateral
was $18,342,399. See Note 13.
NOTE
8 – CONSTRUCTION IN PROGRESS
Construction
in progress as of September 30, 2009 and December 31, 2008 were $26,645,307 and
$25,385,835, respectively. During 2008, the Company acquired land use rights
located close to its operating subsidiaries and started construction projects
for the expansion of manufacturing facilities. These construction projects were
in progress as of September 30, 2009.
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
NOTE
9 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
|
September
30,
2009
|
|
|
December
31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
: Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
|
Depreciation
expenses for the three months ended September 30, 2009 and 2008 were $681,740
and $823,996, respectively. Depreciation expenses for the nine months ended
September 30, 2009 and 2008 were $2,981,421 and $2,414,154,
respectively.
As of
September 30, 2009, the net book value of property, plant and equipment pledged
as collateral for bank loans was $ 5,870,710. See Note 13.
NOTE
10 – OTHER INTANGIBLE ASSETS, NET
Other
intangible assets are summarized as follows:
|
|
September
30,
2009
|
|
|
December
31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated amortization
|
|
|
|
|
|
|
|
|
Other
intangible assets, net
|
|
|
|
|
|
|
|
|
Amortization
expenses for the three months ended September 30, 2009 and 2008 were $1,256,768
and $1,290,173 respectively. Amortization expenses for the nine months ended
September 30, 2009 and 2008 were $3,831,775 and $3,797,628
respectively.
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
NOTE
11 – INVESTMENTS AND ADVANCES IN UNCONSOLIDATED ENTITIES
Long-term
investments and advances include our equity investment in China Aoxing
Pharmaceutical Company, Inc. (“CAXG”), equity investments in a wholesale and
distribution company in Shandong province (“Nuo Hua Affiliate”), and Hezhou
Jinji Color Printing Co Ltd. (“Jinji Printing”). CAXG is a China-based
pharmaceutical company specializing in research, development, manufacturing and
distribution of narcotic and pain-management products in China. Nuo Hua
Affiliate maintains a significant presence in pharmaceutical wholesale and
retail distribution in China. Jinji Printing is a color printing company
focusing on the printing of external packaging materials.
The
Company owns 37% equity interest in CAXG through an initial $18 million direct
investment of its common stock in April 2008 and a subsequent conversion of
approximately $4.5 million worth of promissory note into additional common stock
in August 2009. The promissory note was an advance of RMB30 million to CAXG in
May 2008. The note bears interest at a rate of 8% payable quarterly in arrears
with an initial term of one year and was subsequently extended for an additional
three months. The promissory note plus accrued interest was converted into
CAXG’s common stock based on a predetermined conversion rate at
maturity.
The
Company also owns 30% equity interest in Nuo Hua Affiliate through the
acquisition of Nuo Hua Investment Company Ltd. in October 2008 and the Company
owns 40% equity interest in Jinji Printing through the acquisition of Guangxi
Lingfeng Pharmaceutical Co. in April 2006. Long-term investments are accounted
for using the equity accounting method.
The
following table summarizes the long-term investments and advances as of
September 30, 2009 and December 31, 2008:
|
|
September
30,
2009
|
|
|
December
31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
of equity income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
investment and advances
|
|
|
|
|
|
|
|
|
For the
three and nine months ended September 30, 2009 the Company’s equity in
earnings from above unconsolidated entities are as follows:
|
|
Three
Months Ended
September
30, 2009
(Unaudited)
|
|
|
Nine
Months Ended
September
30, 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Equity
in income from Nuo Hua Affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
)
|
|
|
|
)
|
Equity
in income from Jinji Printing
|
|
|
|
|
|
|
|
|
Total
equity in earnings (loss) from unconsolidated
entities
|
|
|
|
)
|
|
|
|
)
|
|
|
Three
Months Ended
September
30, 2008
(Unaudited)
|
|
|
Nine
Months Ended
September
30, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Equity
in income from Jinji Printing
|
|
|
|
|
|
|
|
|
Total
equity in earnings (loss) from unconsolidated
entities
|
|
|
|
|
|
|
|
|
NOTE
12 – DEPOSIT FOR LONG-TERM ASSETS
Deposits
for long term assets are refundable deposits to acquire land use rights located
in the PRC. The land use rights to be acquired will be utilized in the expansion
of some of the Company's current manufacturing facilities and are not intended
for resale. As of September 30, 2009, the deposits had been reclassified to the
land use rights upon the transfers of legal title.
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
NOTE
13 – DEBT
Short-term
bank loans are obtained from local banks with weighted average interest rate of
5.55% per annum. All the short-term bank loans are repayable within one
year and are secured by plant and equipment and land use rights owned by the
Company. See Notes 7 and 9.
Long-term
loan includes a mortgage loan that bears 2.50% interest per annum and is
repayable over 15 years.
Current
notes payable was $4,084,893 as of September 30, 2009 with interest rate at
5.29% per annum and is repayable on demand.
Interest
expenses for all debts (exclude convertible notes) were $346,283 and $204,189
for the three months ended September 30, 2009 and 2008, respectively. Interest
expenses for all debts (exclude convertible notes) were $1,039,361 and $597,930
for the nine months ended September 30, 2009 and 2008,
respectively.
NOTE
14 – CONVERTIBLE NOTES
On
July 15, 2008, the Company closed a private offering and issued $115
million aggregate principal amount of 5.00% Convertible Senior Notes due 2015
(the “Notes”). The Notes were sold to qualified institutional buyers in a
private placement exempt from the registration requirements of the Securities
Act of 1933, as amended. The net proceeds from the sale of the Notes was
approximately $110 million, after deducting the placement agents’ commission and
estimated offering expenses payable by the Company. The following is a brief
summary of certain terms of this offering.
|
·
|
Total
offering is $115,000,000 aggregate principal amount of 5.00% Convertible
Senior Notes due on July 15,
2015.
|
|
·
|
Interest
at 5.00% per year, payable semiannually in arrears in
cash.
|
|
·
|
The
Notes are convertible, at the option of the holder, at any time prior to
the close of business on the second business day preceding the maturity
date based on an initial conversion rate of 107.6195 shares per $1,000
principal amount of Notes, which represents an initial conversion price of
approximately $9.29 per share.
|
|
·
|
The
initial conversion rate may be adjusted on January 15, 2009 if the volume
weighted average price (
“
VWAP
”
) of our
common stock for each of the 30 consecutive trading days ending on January
15, 2009 is less than $8.08 per share, then the conversion rate will be
increased as a one-time purchase price adjustment such that the conversion
price as adjusted would represent the greater of (1) 115.0% of such
arithmetic average of the daily VWAP and (2) $8.08. As of September 30,
2009, the conversion price was set at $8.08 per
share.
|
|
·
|
The
conversion rate is subject to certain adjustments. In particular, holders
who convert their Notes in connection with certain fundamental changes may
be entitled to a make whole premium in the form of additional shares of
our common stock.
|
|
·
|
Holders
may require the Company to purchase all or a portion of their Notes on
July 15, 2013 for cash at a price equal to 100% of the principal
amount of the Notes to be purchased, plus accrued and unpaid interest, if
any, to, but excluding, the purchase
date.
|
|
·
|
If
a fundamental change occurs, holders will have the right to require the
Company to purchase for cash all or any portion of their Notes. The
fundamental change purchase price will be 100% of the principal amount of
the Notes to be purchased plus accrued and unpaid interest, if any, to,
but excluding, the fundamental change purchase
date.
|
|
·
|
The
Notes will be unsecured, unsubordinated obligations and will rank equal in
right of payment to all of the Company’s existing and future unsecured and
unsubordinated indebtedness. The Notes will be effectively subordinated to
all of the Company’s existing and future secured
indebtedness.
|
Convertible
notes issuance costs incurred by the Company that were directly attributable to
the issuance of the Notes were deferred and charged to the consolidated
statements of income using the straight-line method over the term of the
convertible notes, the results of which approximate the effective interest rate
method.
The
Company has determined that the conversion feature embedded in the Notes is not
required to be bifurcated and accounted for as a derivative pursuant to FASB ASC
815 Derivatives and Hedging, since the embedded conversion feature is indexed to
the Company’s own stock and would be classified in shareholders’ equity if it
was a free-standing instrument pursuant to guidance in FASB ASC 815-40
“Contracts in Entity's Own Equity”. Further, since neither the conversion price
upon issuance nor the adjusted conversion price reset at January 15, 2009 is
less than the market price of the Company’s ordinary shares on the date of
issuance, no beneficial conversion feature existed.
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
NOTE
15 – PREPAID FORWARD SHARES REPURCHASE TRANSACTION
The
Company entered into a prepaid forward shares repurchase contract with an
affiliate of the lead placement agent (“Merrill affiliate”). Pursuant to the
prepaid forward shares repurchase contract, the Company paid approximately $30
million to the Merrill affiliate to fund the repurchase of 3.7 million
shares of common stock for settlement at or about maturity of the Notes. The
forward shares repurchase transaction was also intended to reduce the potential
dilution of our common stock that would result from the conversion of the Notes
into shares of our common stock.
The $30
million cost of the forward stock purchase transaction qualifies as an equity
transaction and was separately presented under shareholder’s equity in the
Balance Sheet without subsequent recognition of changes in fair
value.
The
Company is potentially subject to significant concentration of credit risk with
respect to the prepaid forward repurchase contract. The fact that the Merrill
affiliate has merged with Bank of America reduced the bankruptcy and default
risk.
NOTE
16 – SHAREHOLDERS’ EQUITY
Preferred
Stock
The
Company has 1,000,000 shares of Series A preferred stock (“Series A”) issued and
outstanding. Pursuant to the terms of the Series A, the holder holds aggregate
voting power equal to 25% of the combined voting power of our common stock and
preferred stock. The percentage of voting power represented by the Series A
cannot be diluted by the issuance of additional shares of common stock. The
Series A has a liquidation preference equal to its initial issue price that will
be paid to the holders of the Series A upon liquidation, dissolution or winding
up and prior to any distributions being made to holders of our common
stock.
Common
Stock
A. Issuance of Common
Stock
During
the nine months ended September 30, 2009, the Company issued 42,471 restricted
common stocks as stock compensation in connection with the services rendered by
the Company’s independent directors in 2008. The Company also issued 29,704
shares of common stock to a consultant as partial payment of consulting
fee.
B. Stock
Options
The
Company recorded total stock option compensation expenses of $534,536and
$1,544,037 for the three and nine months ended September 30, 2009. Of the total
value of the option grants, $6,717,600 has not yet been recognized and will be
amortized over the requisite service periods.
The
following table summarizes the stock option activities of the Company:
|
|
Activity
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding
as of January 1, 2009
|
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Outstanding
as of September 30, 2009
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|
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
The
following table summarizes information about stock options outstanding as of
September 30, 2009:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
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Options
granted have no intrinsic value at grant date and at the date of these financial
statements as the exercise price of all vested or unvested options was higher
than the market price. The weighted average fair value per share of the
2,036,239 options issued under the Company’s 2006 Equity Incentive Plan is $5.24
per share. As of September 30, 2009, the Company has 470,553 outstanding vested
stock options, with an exercise price above the average market price, which are
excluded from the Company’s diluted computation.
C. Common Stock to be
Issued
For the
three and nine months ended September 30, 2009, the Company recorded general and
administrative expenses of $69,831 and $139,662 for the stock compensation in
connection with the services rendered by the Company’s executives and $48,168
and $96,336 for the senior management.
For the
three and nine months ended September 30, 2009, the Company recorded general and
administrative expenses of $97,000 and $291,000, respectively, for the stock
compensation in connection with the services rendered by the Company’s
independent directors and $40,200 and $184,400, respectively, for the
consultants.
A total
of 56,364 shares of common stock are issuable as of September 30,
2009.
D. Statutory
Reserves
In
accordance with the PRC Regulations on Enterprises with Foreign Investment, an
enterprise established in the PRC with foreign investment is required to provide
for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise
Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated
from net profit as reported in the enterprise’s PRC statutory
accounts. A wholly-owned foreign enterprise (“WOFE”) is required to
allocate at least 10% of its annual after-tax profit to the General Reserve Fund
until the balance of such fund has reached 50% of its respective registered
capital. A non wholly-own foreign invested enterprise is permitted to
provide for the above allocation at the discretion of its board of directors.
Appropriations to the Enterprise Expansion Fund and Staff Welfare and Bonus Fund
are at the discretion of the board of directors for all foreign invested
enterprises. The aforementioned reserves can only be used for specific purposes
and are not distributable as cash dividends.
As a
result, both for the years ended December 31, 2008 and for the nine month ended
September 30, 2009, $19,924,918 have been appropriated to the statutory reserves
(included in the retained earnings) by the Company’s PRC
subsidiaries.
NOTE
17 – COMMITMENTS
As of
September 30, 2009, the Company had entered into capital commitments for
the manufacturing facilities under construction in the People’s Republic of
China. Total commitment was $5,809,070 within one year and $13,636,583 after one
year but within five years. In addition, the Company had advertisement contract
commitments for $5,138,491.
As of
September 30, 2009, the Company had no material purchase commitment for raw
materials.
AMERICAN
ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of September 30, 2009
NOTE
18 – TAXES
(a) Corporate
Income Tax (“CIT”)
The
Company has not recorded a provision for U.S. federal income tax for the quarter
ended September 30, 2009 as it continues to be in a net operating loss
position.
On
March 16, 2007, the National People’s Congress of China approved the new
Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”),
which is effective from January 1, 2008. Under the new CIT Law, the
corporate income tax rate applicable to most companies is 25% instead of the old
tax rate of 33%. The new CIT Law also provides certain tax concession to
selective eligible companies. All our manufacturing subsidiaries, including GLP,
Boke, Three Happiness, HSPL and CCXA were granted high-tech enterprise status
and enjoy a favorable tax rate of 15% from 2008 to 2010. High-tech enterprise
status is renewable which requires re-application prior to the tax preferences
expire. HQPL, Nuo Hua and GHK do not qualify for any tax concession and
therefore the 25% tax rate applies.
The
Company recorded income tax expense of $9,463,093 and $10,655,299 for the nine
months ended September 30, 2009 and 2008, respectively. The Company’s effective
tax rates are 24.2% and 21.4% for the nine months ended September 30, 2009 and
2008, respectively. The increase in effective tax rate is mainly due to deferred
tax assets not recognized related to net operating loss and a change in
unrecognized tax benefits. The difference between the Company’s effective tax
rate and the statutory rate is mainly due to the following: tax concession,
deferred tax asset not recognized related to net operating loss, and change in
unrecognized tax benefits. In the nine months ended September 30, 2009, the
Company’s income taxes decreased by $1,192,206 from the same period last year
mainly due to decrease in net profits.
The
Company recorded an addition to unrecognized tax benefits of $1,903,342 for the
nine months ended September 31, 2009, which is related to preferential financing
obtained by the Company’s subsidiaries. No interest and penalty has
been accrued for the unrecognized tax benefits. The unrecognized tax benefits is
likely to change in the next twelve months, however, the change can not be
reasonably estimated at this point. The Company’s years ended
December 31, 2006, 2007 and 2008 remain subject to examination by the tax
authorities.
(b) Value
Added Tax (“VAT”)
Enterprises
or individuals who sell commodities, engage in repair and maintenance or import
or export goods in the PRC are subject to a value added tax in accordance with
the PRC laws. The value added tax standard rate is 17% of the gross sales price.
A credit is available whereby VAT paid on the purchases of semi-finished
products or raw materials used in the production of the Company’s finished
products can be used to offset the VAT due on the sales of the finished
products.
The VAT
payable balance of $4,559,007 and $6,262,715 at September 30, 2009 and
December 31, 2008 respectively are included in Other Payables and Accrued
Expenses in the accompanying condensed consolidated balance sheets.
(c) Tax
Holiday
Income
before income tax expenses were $39.1 million and $49.9 million for the nine
months ended September 30, 2009 and 2008 and were mainly attributed to
subsidiaries with operations in China. Income tax related to China income for
the nine months ended September 30, 2009 was $7.6 million. The combined
unaudited pro forma effects of the income tax expense exemptions and reductions
available to us are as follows:
|
|
Nine
Months Ended
September
30,
(Unaudited)
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share excluding tax holiday effect
|
|
|
|
|
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|
ITEM
2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the financial information
presented in this Item 2 has been adjusted to reflect the restatement of
our condensed consolidated financial statements for the three months ended
September 30, 2008. Specifically, we have restated our condensed consolidated
balance sheets as of September 30, 2008 and our condensed consolidated
statements of operations and cash flows for the three months ended September
30,2008
as reported in
the amended annual report on Form 10K/A for the fiscal year ended
December 31, 2008. The restatement is fully described in the “Explanatory
Note” immediately preceding Part I, Item 1of the amended annual report
on Form 10K/A for December 31, 2008 filed concurrently with this report and
in Note 3 to the condensed consolidated financial statements in this
report.
The
following discussion should be read in conjunction with the information
contained in the condensed consolidated financial statements of the Company and
the notes thereto appearing elsewhere herein and in conjunction with the
Management’s Discussion and Analysis set forth in the Company’s Annual Report on
Form 10-K/A for the year ended December 31, 2008. Readers should carefully
review the risk factors disclosed in the Company’s Form 10-K/A for the year
ended December 31, 2008 filed by the Company with the Securities and Exchange
Commission (SEC)..
As used
in this report, the terms “Company”, “we”, “our”, “us” and “AOB” refer to
American Oriental Bioengineering, Inc., a Nevada corporation.
PRELIMINARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
quarterly report contains forward-looking statements within the meaning of the
federal securities laws. These include statements about our expectations,
beliefs, intentions or strategies for the future, which we indicate by words or
phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,”
“AOB believes,” “management believes” and similar language. The forward-looking
statements are based on the current expectations of AOB and are subject to
certain risks, uncertainties and assumptions, including those set forth in the
discussion under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in this report. Actual results may differ materially
from results anticipated in these forward-looking statements. We base the
forward-looking statements on information currently available to us, and we
assume no obligation to update them.
Investors
are also advised to refer to the information in our previous filings with the
SEC, especially on Forms 10-K, 10-Q and 8-K, in which we discuss in more detail
various important factors that could cause actual results to differ from
expected or historic results. It is not possible to foresee or identify all such
factors. As such, investors should not consider any list of such factors to be
an exhaustive statement of all risks and uncertainties or potentially inaccurate
assumptions.
CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
This
section should be read together with the Summary of Significant Accounting
Policies included as Note 2 to the consolidated financial statements included in
our Annual Report on Form 10-K for 2008 filed with the SEC.
Estimates
affecting accounts receivable and inventories
The
preparation of our consolidated financial statements requires management to make
estimates and assumptions that affect our reporting of assets and liabilities
(and contingent assets and liabilities). These estimates are particularly
significant where they affect the reported net realizable value of the Company’s
accounts receivable and inventories.
At
September 30, 2009, the Company provided a $512,013 reserve against accounts
receivable. Management’s estimate of the appropriate reserve on accounts
receivable at September 30, 2009 was based on the aged nature of these accounts
receivable. In making its judgment, management assessed its customers’ ability
to continue to pay their outstanding invoices on a timely basis, and whether
their financial position might deteriorate significantly in the future, which
would result in their inability to pay their debts to the Company.
At
September 30, 2009, the Company provided an allowance against its inventories
amounting to $38,077. Management determination of this allowance is based on
potential impairments to the current carrying value of the inventories due to
slow moving of aged inventories. In making its estimate, management
considered the probable demand for our products in the future and historical
trends in the turnover of our inventories.
While the
Company currently believes that there is little likelihood that actual results
will differ materially from these current estimates, if customer demand for our
products decreases significantly in the near future, or if the financial
condition of our customers deteriorates in the near future, the Company could
realize significant write downs for slow-moving inventories or uncollectible
accounts receivable.
Policy
affecting recognition of revenue
Among the
most important accounting policies affecting our consolidated financial
statements is our policy of recognizing revenue in accordance with ASC 605.
Under this policy, all of the following criteria must be met in order for us to
recognize revenue:
1. Persuasive
evidence of an arrangement exists;
2. Delivery
has occurred or services have been rendered;
3. The
seller’s price to the buyer is fixed or determinable; and
4. Collectability
is reasonably assured.
The
majority of the Company’s revenue results from sales contracts with distributors
and revenue is recorded upon the shipment of goods. Management conducts credit
background checks for new customers as a means to reduce the subjectivity of
assuring collectability. Based on these factors, the Company believes that it
can apply the provisions of ASC 605 with minimal subjectivity.
RECENT ACCOUNTING
PRONOUNCEMENT
A
description of recent accounting pronouncements is set forth under “New
Accounting Standards” in Note 2 of the Notes to the Condensed Consolidated
Financial Statements contained in this Quarterly Report on Form 10-Q, and such
description is incorporated herein by reference. Such description contains all
of the information required with respect thereto.
RESULTS OF OPERATIONS –
THREE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2008
The
following table sets forth the amounts and the percentage relationship to
revenues of certain items in our condensed consolidated statements of income for
the three months ended September 30, 2009 and 2008:
|
|
Three
Months Ended
September
30,
|
|
|
Three
Months Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
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|
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|
General
and administrative
|
|
|
|
|
|
|
|
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|
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|
|
Depreciation
and amortization
|
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|
Equity
in earnings (loss) from unconsolidated entities
|
|
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|
Other
income (expense), net
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
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LESS:
NET INCOME ATTRIBUTABLE TO
NON-CONTROLLING INTEREST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME ATTRIBUTABLE TO
CONTROLLING INTEREST
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Sales
Revenue
Sales
revenue for the third quarter of 2009 was $78,818,666, an increase of $8,224,717
over revenue for the third quarter of 2008. We classify our sales revenue in two
segments: Manufacturing revenue, which comprises sales by our subsidiaries of
our pharmaceutical and nutraceutical products, and Distribution revenue. Net
sales revenue by segments and product categories were as follows:
|
|
Three
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase/
(Decrease)
|
|
|
Increase/
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from pharmaceutical products
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Revenue
from nutraceutical products
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Total
manufacturing revenue
|
|
|
|
|
|
|
|
|
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|
|
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Sales of
our pharmaceutical products increased by $3,927,640, or 6%, as compared to the
same period of 2008 primarily due to the following factors:
|
·
|
The
sales of our prescription pharmaceutical products increased from
$24,302,150 during the third quarter of 2008 to $29,825,894 in the same
period of 2009, or a 23% increase. This is primarily due to the increase
in sales of our prescription formulated Jinji capsule, Boke and CCXA
prescription pharmaceutical products despite the decrease in sales of our
SHL products. The overall increase in sales was supported by our
continuous marketing efforts, increase in new
prescription products offering, as well as expanding coverage
to the previously unaddressed rural market; Our newly launched products,
such as YuYeQingHuo Capsules which treat throat inflammation, have offset
some of the negative impact from the healthcare reform;
and
|
|
·
|
The
sales of our OTC pharmaceutical products decreased from $37,793,316 during
the third quarter of 2008 to $36,197,212in the same period of 2009, or a
4% decrease. This is primarily due to decrease in the sales of our Jinji
Yimucao, which is a product included the china’s essential drug list. Our
distributors reduced their order this quarter in anticipating a decrease
in average selling price when the government auctions begin in the fourth
quarter. We expect the sales of our OTC products will resume once the
selling price is stabilized. We continue to introduce new products to
diversify our product portfolio and reduce concentration risks. Our newly
launched products, such as Shedanchuan beiye which treat inflammation and
cough, have offset some of the negative impact from the healthcare
reform.
|
Sales
from our nutraceutical products increased from $8,498,483 during the third
quarter of 2008 to $9,241,744 in the same period of 2009, representing a growth
of 9%. This increase was mainly attributed to new beverage products launched in
the beginning of 2009.
The
Company has recorded $3,553,816 distribution revenue from Nuo Hua's majority
owned subsidiary, during the three months ended September 30, 2009. Since the
Company’s investment in Nuo Hua did not occur until October, 2008, the Company
had no distribution revenue for the quarter ended September 30,
2008.
Cost of Goods Sold and Gross
Profit
Cost of
goods sold was $34,687,505 for the three months ended September 30, 2009,
compared to $23,402,407 for the three months ended September 30,
2008.
|
|
Three
Months Ended
September
30,
|
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|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase/
(Decrease)
|
|
|
Increase/
(Decrease)
|
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The cost
of goods sold of pharmaceutical and nutraceutical products increased by 34% and
30% in the three months ended September 30, 2009 compared to the three months
ended September 30, 2008, respectively. These increases are mainly attributed to
our increase in sales and the increase in production cost. The Company had no
distribution revenue and thus there was no corresponding cost of goods sold with
respect to distribution services for the three months ended September 30,
2008.
Gross
profit decreased by $3,060,381, for the three months ended September 30, 2009
over the three months ended September 30, 2008.
Gross
profit as a percentage of net revenues decreased from 67% in the comparable
period of the prior year to 56% in the third quarter of 2009. The primary reason
was increased sales of more lower margin products by CCXA in the third quarter
of 2009 compared to the same period of 2008. Further, the purchase prices of
certain raw materials increased the cost of goods sold and lower margin
distribution business from Nuo Hua also contributed to lower gross
profit.
Selling and
Marketing
Selling
and marketing expenses, including distribution expenses, increased from
$9,938,877 in the three months ended September 30, 2008 to $12,245,746 in the
same period of 2009, representing an increase of 23%. The details of our selling
and marketing expenses are as follows:
|
|
Three
Months Ended
September
30,
|
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|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase/
(Decrease)
|
|
|
Increase/
(Decrease)
|
|
|
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Promotional
materials and fees
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The
increase in selling and marketing expenses in the quarter ended September 30,
2009 compared to the same quarter during 2008 was primarily due to the following
factors:
|
·
|
Promotional
materials and fees increased 24% from $6,524,206 to $8,063,949 during the
third quarter of 2009 as compared to the same quarter of 2008. This was
primarily due to the increase in our promotion activities and initiatives
to support the continuous growth of our
revenue.
|
|
·
|
Shipping
increased 42% from $897,516 to $1,273,117 during the third quarter of 2009
as compared to the same quarter of 2008. This was primarily due to the
increase of net sales and the increase cost of
logistics.
|
|
·
|
Sales
conference increased 237% from $248,052 to $835,979 during the third
quarter of 2009 as compared to the same quarter of 2008. The increase was
mainly due to the additional internal conferences which being held to
plan, coordinate and to formulate sales policies in response to china’s
health care reform plan. The company held more external sales conference
to promote existing and new prescription products. We held more
promotional conferences for our SHL products in particular, to offset the
negative impact caused by fatal incidents and product quality issues of
similar products manufactured by other
companies.
|
Advertising
Advertising
expenses decreased by $900,641, from $9,913,728 in the third quarter of 2008 to
$9,013,087 in the same quarter of 2009. Advertising expenses as a percentage of
revenue decreased from 14% in the third quarter of 2008 to 11% in the same
quarter of 2009. As the general advertising cost of media in the PRC continues
to increase, we decreased media advertising activities but increased other
promotional activities and direct sales efforts to support the continuous growth
of our revenue efficiently.
General and
Administrative
General
and administrative expenses from $4,690,793 in the third quarter of 2008 to
$6,457,734 in the same quarter of 2009, or a 38% increase. The
details of general and administrative expenses were as follows:
|
|
Three
Months Ended
September
30,
|
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|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase/
(Decrease)
|
|
|
Increase/
(Decrease)
|
|
|
|
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|
|
(Restated)
|
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|
Professional
fees – accounting
|
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Staff
welfare and insurance
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The
increase in general and administrative expenses in the three months ended
September 30, 2009 compared to the same period during 2008 was primarily due to
the following factors:
|
·
|
Payroll
expenses decreased by $122,797, or 14% as compared to the same quarter
during 2008. These reflect the Company’s increased efforts in optimization
of human resource management and cost control;
and·
|
|
·
|
Accounting
related professional fees increased by $772,142, or 545% as compared to
the same quarter during 2008, due primarily to the increase in audit fees
relating to our increased number of subsidiaries being audited and
additional accrual of audit fee to our new auditors;
and
|
|
·
|
Research
and development increased by $199,945, or 46%, as compared to the same
period of 2008, due to our increased R&D effort on new products and
existing products enhancement; and
|
|
·
|
Maintenance
and repair fees increased by $693,910, or 1111%, as compared to the same
period of 2008. We incurred additional expense during the third quarter of
2009 in upgrading our existing equipments and technologies, as of result
of more stringent GMP manufacturing standards and to improve production
efficiency; and
|
|
·
|
Stock
compensation expense increased from $615,586 in the third quarter of 2008
to $789,735 in the same quarter of 2009 due to our additional amortization
cost of new stock options issued to the executives and the senior
management in late 2008 and the second quarter of
2009.
|
Depreciation and
Amortization
Depreciation
and amortization expenses increased by $384,963 or 38%, in the quarter ended
September 30, 2009 compared to the same quarter during 2008. This increase was
primarily due to the depreciation and amortization charges of the facilities and
lands acquired during 2008.
Interest Expense,
Net
Net
interest expense was $1,106,805 for the three months ended September 30, 2009,
which was comparable to net interest expense of $1,143,013 for the three months
ended September 30, 2008.
Income
Taxes
Income
tax expense for the quarter ended September 30, 2009 was $3,257,771, compared to
$4,339,045 for the quarter ended September 30, 2008. The Company’s effective tax
rate for this quarter was 24.5%.
RESULTS OF OPERATIONS – NINE
MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2008
The
following table sets forth the amounts and the percentage relationship to
revenues of certain items in our condensed consolidated statements of income for
the nine months ended September 30, 2009 and 2008:
|
|
Nine
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2009
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
(Restated)
|
|
|
|
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|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
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|
|
Equity
in loss from unconsolidated entities
|
|
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|
INCOME
BEFORE INCOME TAXES
|
|
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|
LESS:
NET LOSS ATTRIBUTABLE TO
NON-CONTROLLING INTEREST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME ATTRIBUTABLE TO
CONTROLLING INTEREST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Revenue
Sales
revenue for the nine months ended September 30, 2009 were $196,117,893, an
increase of $27,745,341 over sales revenue for the same period of 2008. We
classify our sales revenue in two segments: Manufacturing revenue, which
comprises sales by our subsidiaries of our pharmaceutical and nutraceutical
products, and Distribution revenue. Sales revenue by segments and product
categories were as follows:
|
|
Nine
Months Ended
September
30,
|
|
|
Increase/
(Decrease)
|
|
|
Increase/
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from pharmaceutical products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from nutraceutical products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
manufacturing revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Sales of
our pharmaceutical products increased by $15,394,090, or 11%, as compared to the
same period of 2008 primarily due to the following factors:
|
·
|
The
sales of our prescription pharmaceutical products increased from
$58,879,490 during the first nine months of 2008 to $71,192,969 in the
same period of 2009, or a 21% increase. This is primarily due to the
increase in sales of our prescription formulated Jinji capsule, BOKE and
CCXA prescription pharmaceutical products despite the decrease in sales of
our SHL products. The overall increase in sales was supported by our
continuous marketing efforts, increase in new products offering, as well
as expanding coverage to the previously unaddressed rural market; Our
newly launched products, such as YuYeQingHuo Capsules which treat throat
inflammation, have offset some of the negative impact from the healthcare
reform and
|
|
·
|
The
sales of our OTC pharmaceutical products increased from $84,867,800 to
$87,948,411, or a 4% increase. This was attributable to the increase in
sales of our Boke and CCXA products as a result of improved recognition of
our product supported by our marketing campaigns. The increase was
partially offset by decrease in the sales of our Jinji Yimucao, which is a
product included the China’s essential drug list. Our distributors reduced
their order in anticipating a decrease in average selling price when the
government auctions begin in the fourth quarter. We expect the sales of
our OTC products will resume once the selling price is stabilized. We
continue to introduce new products to diversify our product portfolio and
reduce concentration risks. Our newly launched products, such as
Shedanchan beiye which treat inflammation and cough, have offset some of
the negative impact from the healthcare reform;
and
|
Sales
from our nutraceutical products increased from $24,625,262 during the nine
months ended September 30 of 2008 to $27,677,227 in the same period of 2009,
representing a growth of 12%. This increase was mainly attributed to new
beverage products launched during the nine months ended September 30 of
2009.
The
Company has recorded $9,299,286 distribution revenue from Nuo Hua's majority
owned subsidiary, during the nine months ended September 30, 2009. Since the
Company’s investment in Nuo Hua did not occur until October, 2008, the Company
had no distribution revenue for the first nine months ended September 30,
2008.
Cost of Goods Sold and Gross
Profit
Cost of
goods sold was $81,942,766 for the nine months ended September 30, 2009,
compared to $54,808,490 for the nine months ended September 30,
2008.
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase/
(Decrease)
|
|
|
Increase/
(Decrease)
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
|
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|
|
|
|
|
|
|
The cost
of goods sold of pharmaceutical and nutraceutical products increased by 36% and
22%, respectively, in the nine months ended September 30, 2009 compared to the
same period of 2008. These increases are attributed to our increase in sales and
the increase in production cost.. The Company had no distribution revenue and
thus there was no corresponding cost of goods sold with respect to distribution
services for the nine months ended September 30, 2008.
Gross
profit increased by $611,065 or 1%, for the nine months ended September 30, 2009
over the same period of 2008.
Gross
profit as a percentage of net revenues decreased from 67% in the comparable
period of the prior year to 58% in the nine months ended September 30, 2009 due
to sales of much lower margin products by CCXA in the nine months ended quarter
September 30, 2009 compared to the same period of 2008. Further, the purchase
prices of certain raw materials increased the cost of goods sold and lower
margin distribution business from Nuo Hua also contributed to lower gross
profit.
Selling and
Marketing
Selling
and marketing expenses, including distribution expenses, increased from
$22,656,477 in the nine months ended September 30, 2008 to $26,853,377 in the
same period of 2009, representing an increase of 19%. The details of our selling
and marketing expenses are as follows:
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase/
(Decrease)
|
|
|
Increase/
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promotional
materials and fees
|
|
|
|
|
|
|
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0
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|
|
|
|
|
|
|
|
|
|
The
increase in selling and marketing expenses in the nine months ended September
30, 2009 compared to the same period of 2008 was primarily due to the following
factors:
|
·
|
Promotional
materials and fees increased 29% from $12,007,766 to $15,476,289 during
the nine months ended September 30, 2009 as compared to the same period of
2008. This was primarily due to the increase in our promotion activities
and initiatives to support the continuous growth of our
revenue.
|
|
·
|
Shipping
increased 32% from $2,362,105 to $3,127,419 during the first three
quarters of 2009 as compared to the same quarters of 2008. This was
primarily due to the increase of net sales and the increase cost of
logistics.
|
|
·
|
Sales
conference increased 62% from $1,035,266 to $1,676,922 during the third
quarter of 2009 as compared to the same quarter of 2008. The increase was
mainly due to the additional internal conferences which being held to
plan, coordinate and to formulate sales policies in response to china’s
health care reform plan. The company held more external sales conference
to promote existing and new prescription products. We held more
promotional conferences for our SHL products in particular, to offset the
negative impact caused by fatal incidents and product quality issues of
similar products manufactured by other
companies.
|
Advertising
Advertising
expenses increased slightly by $600,080 from $21,760,300 in the three quarters
of 2008 to $22,360,380 in the same quarters of 2009. Advertising
expenses as a percentage of revenue decreased from 13% in the nine months ended
September 30, 2008 to 11% in the same period of 2009. As the general advertising
cost of media in the PRC continues to increase, we decreased media advertising
activities but increased other promotional activities and direct sales efforts
to support the continuous growth of our revenue efficiently.
General and
Administrative
General
and administrative expenses increased from $14,235,806 in the nine months ended
September 30 of 2008 to $15,981,195 in the same period of 2009, or a 12%
increase. The details of general and administrative expenses were as
follows:
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase/
(Decrease)
|
|
|
Increase/
(Decrease)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
Professional
fees – accounting
|
|
|
|
|
|
|
|
|
|
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|
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|
|
Staff
welfare and insurance
|
|
|
|
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The
increase in general and administrative expenses in the nine months ended
September 30, 2009 compared to the same period during 2008 was primarily due to
the following factors:
|
·
|
Accounting
related professional fees increased by $1,009,463, or 76% as compared to
the same quarter during 2008, due primarily to the increase in audit fees
relating to our increased number of subsidiaries being audited; and
additional accrual of audit fee to our new auditors;
and
|
|
·
|
Maintenance
and repair fees increased by $719,854, or 918%, as compared to the same
period of 2008. We incurred additional expense during the three quarters
of 2009 in upgrading our existing equipments and technologies, as a result
of more stringent GMP manufacturing standards and to improve production
efficiency; and
|
|
·
|
Payroll
expenses decreased by $391,494, or 14% and Staff welfare and insurance
expenses decreased by $195,426, or 16% as compared to the same quarter
during 2008. These reflect the Company’s increased efforts in optimization
of human resource management and cost control;
and
|
|
·
|
Research
and development increased by $343,529, or 37%, as compared to the same
period of 2008, due to our increased R&D effort on new products and
existing products enhancement; and
|
|
·
|
Stock
compensation expense increased from $1,655,493 in the three quarters of
2008 to $2,255,435 in the same period of 2009 due to our additional
amortization cost of new stock options issued to the executives and the
senior management in late 2008 and the second quarter of
2009.
|
Depreciation and
Amortization
Depreciation
and amortization expenses increased by $2,106,481, or 70%, in the nine months
ended September 30, 2009 compared to the same period of 2008. This increase was
primarily due to the depreciation and amortization charges of the facilities and
lands acquired during 2008.
Interest Expense,
Net
Net
interest expense was $4,306,143 for the nine months ended September 30, 2009,
compared to net interest expense of $1,156,782 for the nine months ended
September 30, 2008. The increase was mainly related to the convertible notes
issued in July 2008.
Income
Taxes
Income
tax expense for the nine months ended September 30, 2009 was $9,463,093,
compared to $10,655,299 for the nine months ended September 30, 2008. The
Company’s effective tax rate during the nine months ended September 30, 2009 was
24.2%.
LIQUIDITY AND CAPITAL
RESOURCES
Cash
Our cash
balance at September 30, 2009 was $115,923,399, representing an increase of
$45,286,889 or 64%, compared with our cash balance of $70,636,510 at December
31, 2008. The increase was mainly attributable to the net cash provided by
operating activities of $44,325,493.
We plan
to use our cash for acquisitions, research and development activities, sales and
marketing of our products, and other general corporate purposes. We manage our
cash based on thorough consideration of our corporate strategy as well as the
macro economic situation. Factors we take into account when managing our cash
include interest income, foreign currency fluctuation as well as the flexibility
in executing our acquisition strategy.
Cash
Flow
Cash
flows from operations during the nine months ended September 30, 2009 amounted
to $44,325,493, representing a decrease of approximately 9% compared with cash
flows from operations of $48,831,133 in the same period of 2008. The decreased
cash flow was primarily due to the decrease in our net income by 24%, to
$29,629,176 during the nine months ended September 30, 2009, compared with net
income of $39,231,126 in the same period last year. The decrease was also due to
the decrease of accounts payable, by $2,205,758. The decreased cash flow was
offset by an increase in our accounts receivable and inventory of
$3,390,127.
Our cash
flows provided by investing activities amounted to $3,592,790 during the nine
months ended September 30, 2009. During that period, we received
$6,397,106 for refundable deposit for due diligence. We also paid $2,256,148 for
the purchases of construction in progress, plant and equipment and certain land
use right during that period.
Our cash
flows used in financing activities amounted to $2,756,346 during the nine months
ended September 30, 2009. During that period, we repaid $7,501,752 bank loans
and received $9,951,673 from the short-term bank loans. We also paid $5,750,000
convertible notes interest during the nine months ended September 30,
2009.
Working Capita
l
Our
working capital increased by $39,512,641 to $126,595,346 at September 30, 2009
as compared to $87,082,705 at December 31, 2008, primarily due to our increase
in cash of $45,286,889, inventories of $2,249,587. The increase was partly
offset by a decrease in refundable deposit of $6,396,996.
We
currently generate our cash flow through operations. We believe that our
existing cash on hand and cash flow generated from operations will be sufficient
to sustain operations for at least the next twelve months. From time to time, we
may identify new expansion opportunities for which there will be a need to use
cash.
As of
September 30, 2009, the Company had entered into unconditional capital
commitments for manufacturing facilities under construction in the People’s
Republic of China for $5,809,070 within one year and $13,636,583 after one year
but within five years.. In addition, the Company had advertisement contract
commitments for $5,138,491.
ISSUANCE OF COMMON
STOCK
During
the three months ended September 30, 2009, the Company issued 20,000 shares of
restricted common stock as stock compensation in connection with the services
rendered by a consultant.
INFLATION
Inflation
has not had a material impact on our business and we do not expect inflation to
have an impact on our business in the near future.
CURRENCY EXCHANGE
FLUCTUATIONS
Majority
of the Company’s revenues and expenses in the three months ended September 30,
2009 were denominated in Renminbi (“RMB”), the currency of China, and were
converted into US dollars at the exchange rate of 6.8412 to
1. As a result of the appreciation of the RMB against US
dollar, we recognized a foreign currency translation gain of $655,400 during the
nine months ended September 30, 2009. There can be no assurance that
RMB-to-U.S. dollar exchange rates will remain stable. A devaluation of RMB
relative to the U.S. dollar would adversely affect our business, consolidated
financial condition and results of operations. We do not engage in
currency hedging.
ITEM
3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not
invest in derivative instruments and do not engage in any hedging activities.
Because most of our purchases and sales are made in RMB, any exchange rate
change affecting the value of the RMB relative to the U.S. dollar could have an
effect on our financial results as reported in U.S. dollars. If the RMB were to
depreciate against the U.S. dollar, amounts reported in U.S. dollars would be
correspondingly reduced. If the RMB were to appreciate against the U.S. dollar,
amounts reported in U.S. dollars would be correspondingly
increased.
ITEM
4 – CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this report (the “Evaluation Date”), we carried out
an evaluation in accordance with the requirements of auditing standards and
applicable U.S. rules. The Company’s internal audit group, which
includes its Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), with respect to this
Quarterly Report on Form 10-Q before its filing with the
Commission. The audit group made its evaluation pursuant to Rule
13a-15 under the Exchange Act.
We have
taken appropriate steps and actions to prevent these errors in the future,
including the implementation of a new company-wide review and reporting system
to improve processes and strengthen controls throughout the
Company.
Changes
in Internal Control over Financial Reporting
There was
no change in our internal control over financial reporting that occurred during
the third quarter of 2009 covered by this Quarterly Report on Form 10-Q that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
However,
as disclosed in Note 3 to the Financial Statements, subsequent to the end of the
third quarter during the review of the Company’s third quarter 2009 operating
results, the Company identified historical accounting errors in (i) the
calculation of its stock based compensation, (ii) the recognition of deferred
tax liabilities of certain acquired assets, and (iii) the provision of deferred
tax liabilities on undistributed earnings of foreign subsidiaries, which
resulted in the misstatement of certain balance sheet and income statement items
and cumulative net earnings since 2006. We have taken appropriate
steps and actions to prevent these errors in the future, including the
implementation of a new company-wide review and reporting system to improve
processes and strengthen controls throughout the Company.
PART
II – OTHER INFORMATION
ITEM
1 – LEGAL PROCEEDINGS
We are
not currently involved in any litigation that we believe could have a material
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of our executive officers or any of our subsidiaries,
threatened against or affecting our company, our common stock, or any of our
subsidiaries, or against our Company’s or our Company’s subsidiaries’ officers
or directors in their capacities as such, in which an adverse decision could
have a material adverse effect.
ITEM
1A – RISK FACTORS
There
have been no material changes or new risks since our Annual Report on Form 10-K
for the year ended December 31, 2008.
ITEM
2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During
the three months ended September 30, 2009, the Company issued 29,704 shares of
restricted common stock as stock compensation in connection with the services
rendered by a consultant. The issuance of the foregoing shares was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
ITEM
3 – DEFAULTS UPON SENIOR SECURITIES
There
have been no material defaults.
ITEM
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There
were no matters submitted to a vote of security holders during the period
covered by this report.
ITEM
5 – OTHER INFORMATION
On
November 15, 2009, the Company amended the 2008 and 2009 employment agreements
(the “Employment Agreements”) and 2008 and 2009 stock option award agreements of
each of Tony Liu (Chairman and Chief Executive Officer), Yanchun Li (Chief
Financial Officer and Chief Operations Officer), Jun Min (Vice President),
Binsheng Li (Chief Accounting Officer) and Wilfred Chow (V.P. of Finance)
(collectively, the “Executives”).
Under the
Employment Agreements each Executive was initially granted an option to
purchase a certain number of shares of common stock (the "Initial Option
Grant"), which number was based upon the Company's internal method for
valuing each share of common stock underlying the stock option at the time
of the grant (the "Per Share Value"), to reach a total annual compensation
value for accounting purposes (the "Total Value"). During the review
of the Company’s third quarter 2009 operating results, the Company identified
historical accounting errors in the calculation of its stock based
compensation. As the result of an error in the calculation of the Per
Share Value, the number of shares issuable under the Initial Option Grant
was incorrect for each Executive and should have been lower. However,
the Total Value and the exercise price of the Initial Option Grant for each
Executive remained unchanged. The Board of Directors approved the
amendment to the Employment Agreements and the Compensation Committee approved
the reduction in the Initial Option Grant.
The
reduction in the Initial Option Grant for each Executive fore 2009 and 2008 is
as follows:
|
|
2009
|
|
|
2008
|
|
Name
|
|
Original
Option Grant
|
|
|
Revised
Option Grant
|
|
|
Original
Option Grant
|
|
|
Revised
Option Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony
Liu
|
|
|
90,285
|
|
|
|
60,780
|
|
|
|
307,428
|
|
|
|
111,850
|
|
Yanchun
Li
|
|
|
79,746
|
|
|
|
53,685
|
|
|
|
271,543
|
|
|
|
98,794
|
|
Jun
Min
|
|
|
59,810
|
|
|
|
40,264
|
|
|
|
203,657
|
|
|
|
74,096
|
|
Binsheng
Li
|
|
|
49,271
|
|
|
|
33,169
|
|
|
|
167,771
|
|
|
|
61,040
|
|
Wilfred
Chow
|
|
|
54,876
|
|
|
|
36,942
|
|
|
|
186,857
|
|
|
|
67,983
|
|
The
amendment to each Employment Agreement is attached as an Exhibit to this
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
ITEM
6 – EXHIBITS
The
following exhibits are filed as part of this Quarterly Report on Form
10-Q:
Exhibit No.
|
Description
|
10.1
|
Amendment
to 2008 Employment Agreement, by and between the Company and Tony Liu,
dated November 15, 2009
|
10.2
|
Amendment
to 2008 Employment Agreement, by and between the Company and Yanchun Li,
dated November 15, 2009
|
10.3
|
Amendment
to 2008 Employment Agreement, by and between the Company and Jun Min,
dated November 15, 2009
|
10.4
|
Amendment
to 2008 Employment Agreement, by and between the Company and Binsheng Li,
dated November 15, 2009
|
10.5
|
Amendment
to 2008 Employment Agreement, by and between the Company and Wilfred Chow,
dated November 15, 2009
|
10.6
|
Amendment
to 2009 Employment Agreement, by and between the Company and Tony Liu,
dated November 15, 2009
|
10.7
|
Amendment
to 2009 Employment Agreement, by and between the Company and Yanchun Li,
dated November 15, 2009
|
10.8
|
Amendment
to 2009 Employment Agreement, by and between the Company and Jun Min,
dated November 15, 2009
|
10.9
|
Amendment
to 2009 Employment Agreement, by and between the Company and Binsheng Li,
dated November 15, 2009
|
10.10
|
Amendment
to 2009 Employment Agreement, by and between the Company and Wilfred Chow,
dated November 15, 2009
|
|
Certification
of Chief Executive Officer (Principal Executive Officer) pursuant to Rule
13a – 14(a) of the Securities Exchange Act, as
amended
|
|
Certification
of Acting Chief Financial Officer (Principal Financial Officer) pursuant
to Rule 13a – 14(a) of the Securities Exchange Act, as
amended
|
|
Certification
of Chief Executive Officer (Principal Executive Officer) and Chief
Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C.
1350, as adopted.
|
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN
ORIENTAL BIOENGINEERING, INC.
/s/ Tony
Liu
TONY
LIU
CHAIRMAN
AND CHIEF EXECUTIVE OFFICER
DATED:
November 16, 2009
/s/ Yanchun
Li
YANCHUN
LI
CHIEF
FINANCIAL OFFICER
DATED:
November 16, 2009
EXHIBIT
INDEX
Exhibit No.
|
Description
|
10.1
|
Amendment
to 2008 Employment Agreement, by and between the Company and Tony Liu,
dated November 15, 2009
|
10.2
|
Amendment
to 2008 Employment Agreement, by and between the Company and Yanchun Li,
dated November 15, 2009
|
10.3
|
Amendment
to 2008 Employment Agreement, by and between the Company and Jun Min,
dated November 15, 2009
|
10.4
|
Amendment
to 2008 Employment Agreement, by and between the Company and Binsheng Li,
dated November 15, 2009
|
10.5
|
Amendment
to 2008 Employment Agreement, by and between the Company and Wilfred Chow,
dated November 15, 2009
|
10.6
|
Amendment
to 2009 Employment Agreement, by and between the Company and Tony Liu,
dated November 15, 2009
|
10.7
|
Amendment
to 2009 Employment Agreement, by and between the Company and Yanchun Li,
dated November 15, 2009
|
10.8
|
Amendment
to 2009 Employment Agreement, by and between the Company and Jun Min,
dated November 15, 2009
|
10.9
|
Amendment
to 2009 Employment Agreement, by and between the Company and Binsheng Li,
dated November 15, 2009
|
10.10
|
Amendment
to 2009 Employment Agreement, by and between the Company and Wilfred Chow,
dated November 15, 2009
|
|
Certification
of Chief Executive Officer (Principal Executive Officer) pursuant to Rule
13a – 14(a) of the Securities Exchange Act, as
amended
|
|
Certification
of Acting Chief Financial Officer (Principal Financial Officer) pursuant
to Rule 13a – 14(a) of the Securities Exchange Act, as
amended
|
|
Certification
of Chief Executive Officer (Principal Executive Officer) and Chief
Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C.
1350, as adopted.
|
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